May 27, 2024

High & Low Finance: Mighty Determined Sellers

This week Wall Street witnessed two motivated sellers determined to sell shares. What they have in common is the determination to take what is available now, rather than wait and hope for a more receptive market.

In many ways, the sellers could not be more different. One specializes in sex-oriented content and warns that some governments deem its products to be immoral. The other is the United States Department of the Treasury.

Prospectuses for stock offerings always list risk factors, but each of these has one that you don’t see in an ordinary offering. One seller has trouble finding a bank to take its deposits. The other may be exempt from complying with securities laws.

Said the prospectus from FriendFinder Networks: “Many companies that provide products and services we need are concerned that associating with us could lead to their becoming the target of negative publicity campaigns by public interest groups and boycotts of their products and services.” Some American banks and credit card companies will not do business with FriendFinder, although foreign financial institutions are less queasy, at least so far.

The prospectus for shares to be sold later this month in the American International Group, the big insurance company whose reckless behavior might have destroyed the financial system had the government not bailed it out in 2008, said this: “The selling shareholder is a federal agency, and your ability to bring a claim against the selling shareholder under the federal securities laws may be limited.”

In other words, if it turns out the prospectus is full of lies, you can’t sue the seller. Thanks to sovereign immunity, such a suit “would likely be barred.”

You have to admire a government that thinks rules should apply to everyone except itself.

FriendFinder Networks, the publisher of Penthouse magazine and the operator of numerous Web sites, has been trying to go public for three years. The first time it wanted to raise $460 million. Last year, it tried to get $240 million. This year, it settled for $50 million.

It was still more than the market would bear. The company went public on Wednesday at $10 a share, and began falling within seconds. By Thursday’s close, the price was $7.44.

The marvel is that the shares sold at any price. This is a company without growth in anything except debts. Sales in each of the last three years were around $350 million, while annual losses held steady at over $40 million. It has a half-billion dollars in debts on its books. Its largest asset, by far, is good will. Even counting that, it has a negative net worth.

Management says it has been trying. At Penthouse, the company “softened the magazine’s pictorial content to improve newsstand positioning,” but revenue continues to decline.

Its most popular Web site is, which proclaims itself to be “The World’s Largest Sex Swinger Personals Community,” but the company has many other sites. One is intended for seniors — which it defines as people over 40 — and another is described as a “Christian dating website with searchable Bible passages.” The senior site and the Christian site each have about 1 percent as much traffic as the sex site.

The company has no shortage of litigation. A fraud suit filed by Robert Guccione, the founder of Penthouse, was delayed after he died, but is expected to be continued by his estate. Last month, Facebook Inc., not pleased to see FriendFinder using the term “face book of sex,” sued the company for copyright infringement.

The money taken in from the offering will go to pay down debt — about a third of it held by corporate insiders. Senior executives will also get large raises consistent with the “increased responsibility” of running a public company. The company won’t have any more cash for operations, but the bosses will do quite well.

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